Fed Finds Wage Growth in Some Regions

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Wage pressures caused by a tightening labor market are increasing in parts of the U.S. but the strong dollar and the drop in oil prices are depressing economic activity, according to the Federal Reserve.

In its latest “Beige Book” survey of economic conditions around the country, the Fed presented “a hazy picture for U.S. central bankers as they meet in two weeks to set interest-rate policy,” MarketWatch reported. The Fed has said its decision hinges on whether economic data show the economy expanding steadily and inflation heading toward its 2% target.

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The Beige Book found growing wage pressures, which could lead to a pickup in consumer spending, meaning more jobs and more demand.

While wage growth remains sluggish nationally, workers are gaining leverage and starting to see a boost in some regions, such as parts of the Midwest, northern California and New York. “Several districts reported increasing wage pressures caused by labor market tightening,” the Fed said.

The St. Louis Fed said almost three-fifths of companies that responded to the survey had raised wages in the prior three months. “You’re starting to see a definitive undeniable pickup” in wages, John Canally, chief economist strategist at LPL Financial, told MarketWatch.

Among other positive signs, the Fed cited an improving housing market, with existing home sales and prices climbing. But on the side of caution, it warned of growing obstacles facing American manufacturers, particularly the strong dollar, depressed oil prices and the economic slowdown in China.

Industries in three districts reported weakened demand from China: wool products in San Francisco, chemicals in Boston and high-tech goods in Dallas. “The China issues are beginning to spread. It’s something to watch,” Canally said.

The latest beige book covers activity from July through mid-August, before concerns over China’s economy caused sharp drops in global equity markets.